Assessing the Impact of a Get Surcharge on Hawaii's Economy: A Response to Testimony from the Department of Budget and Finance on SB 727

Abstract

To fund a public Long Term Care program in Hawaii, a surcharge on Hawaii's General Excise Tax was proposed (SB 727 SD1, 28th legislature). Testimony on the bill showed concern with the impact of an increase to the general excise tax on the economy. To evaluate how an increase of one half percent on Hawaii's GET might affect the economy, an analysis of a comparable GET surcharge was done. In 2005, the City and County of Honolulu implemented a one half percent surcharge on GET to fund a mass transit system. The impact of this one half percent surcharge was studied by comparing tax revenue on Oahu before and after the implementation of the surcharge with neighbor island's tax revenue. Looking at various GET categories, income tax, and total tax collected, there is no evidence that the one half percent surcharge for City and County of Honolulu business transaction had a negative impact on tax revenue.